Charging Fees for Risk Advice

Could your advice practice survive and prosper if you were forced to charge a fee for life insurance advice?

No (84%)

Yes (9%)

Not sure (7%)

The decision by the Accounting Professional and Ethical Standards Board to stick with its plan to ban accountants from receiving life insurance commissions has prompted our latest poll question, which asks:

Could your advice practice survive and prosper if you were forced to charge a fee for life insurance advice?

Under the APES 230 proposal (see APES 230 Decision…), accountants will be banned from receiving risk commissions for their life insurance advice, nor will they be permitted in future to receive any form of ‘conflicted remuneration’ (which will include life insurance commissions) for any client referral business they provide to financial planners.

This decision will have ramifications for many business relationships that currently exist between financial planning and accounting firms and within the accounting firms themselves.

Many advisers will object to the decision by the APES Board to ban risk commissions. Some will support the decision. Irrespective of your position on this issue, this poll is asking you to take a step back and consider a future where you are no longer remunerated by commission for risk advice. Do you believe this future is possible for your business, regardless of whether you support a ban on risk commissions?

15 Responses to Charging Fees for Risk Advice

I have been providing risk advice for over 10 years. In 2009 I tried to change to a fee for service model. I proposed to clients that they pay a fee for their SOA ($550 to $2,200 dpending on complexity) and I would rebate the upfront commission but keep the full trail. Even after showing them not only the reduced upfront premium but also how much they would save over time, I only had 3 clients who opted to take up the offer. All other clients chose the commission based option. Even when FUM was involved,clients would choose an option to use risk commission to pay for or contribute to the fee for investment advice over paying the fee themselves. Even if the whole industry moved to fee for service on risk advice, we would be killed by direct insurance offerings and super funds providing the advice on a “general advice” basis.

Mark is spot on. And those ( perhaps younger )advisers who accept the clap-trap idealogy bandied about that commission on risk equals ” conflicted ” (?) advice, should ask themselves who would support fee-only advice on risk, and what do they stand to gain.

Surprise surprise. The supporters of this propostion are those who would benefit most – our old friends the life offices ( and the FSC), and the ISFN

For life offices, who are no longer the long term thinkers they used to be before the banks bought them, short term profit is now the key, and not paying commission on risk is the very attractive target, particularly when it appears to have government support, and brownie points can be earned. Remember, the FSC proposition of 3 year responsibility is designed to claw back the $700m up front cost to implement FOFA

Long term it would probably be more expensive for insurers if risk advisers took fees only, because, assuming a policy still has to stay on the books for 7 years to make a profit, the life offices would once again have to take up the responsibilty for policy service to the client, including measures to retain business. Add to that cost of putting it on the books, which may even increase.

Recently the life offices have successfully passed on a high proportion of their admin costs to advisers, who are seduced to comply by the possibility renewal commission recall on lapses, with a corresponding impact on business sale value.

No fee charging adviser will be interested in chasing up a bounced credit card deduction if there is no financial incentive, and why should they, when its ultimately the clients responsibility. No fee based adviser will get involved in the application process, unless there is a fee for that service

There are good sound reasons why the life insurance and general insurance industries have prospered for more than 200 years – motivated intermediaries.

As to the ISFN, well they would like to get rid of self-employed advisers completely, to weaken the retail fund managers, who the ISFN see as the real enemy.
But the ISFN is so inept at providing advice to members, that it is apparently powerless to stop a rapidly increasing outflow of funds to the SMSF sector. And for that they blame advisers and planners.

And the ISFN lot have still not worked out that in order to offer discounted insurance to memmbers, they need a viable life industry. That industry is sustained by profitable fully underwritten life risk which stays on the books. That requires motivated and incentivated advisers, not advisers whose responsibility ceases the moment the fee is paid for the advice.

That adviser will no longer be responsible if the client takes the advice but buys no product, or gives up on the buying process when the insurer, forced to deal direct with the prospective client, asks the applicant to obtain, and pay for, medical evidence, like one insurer ( now gone, more or less ) used to do.

Mark has hit the nail on the head. Clients DO NOT want to pay for insurance advice directly. The plethora of direct insurance suppliers and others providing general advice will ensure that they retain this attitude.

We have attempted to instil a fee for insurance advice, but have been told “No, I’m not willing to pay a fee because I can go online or speak with someone else who will give me a cost without charging a fee.” Yet, these same people are willing to have a commission paid by the insurer even though they are really payting it. Why is this? Because they perceive that they have not had to pay it themselves.

The problem is that most people feel that they do not requires risk advice that takes into account all their circumstances, then provides a professional result. Instead, they just concentrate on the cost, not the benefit.

This will continue. Why does it seem that every 2nd ad on TV these days seems to be from a direct insurer? They are making money hands over fist and many in the long run will not pay a benefit because their underwriting rules come into force at claim time, not prior to putting the policy in place!!!

here we go again with this waste of energy of a discussion…..all these sanctimonious sycophants…..the APES board needs to alter its name to add ROCK in front of it…..

I have absolutely had a gutful of people including the FSC or whatever union it happens to be called today, trying to fix something that is not broken!!

Go and spin whatever gospel you think you are trying to preach where there IS a problem…..!!!!

the only thing needed to ‘correct’ whatever is supposedly needing it, is that the cartel – the life offices – stop paying the unsustainable upfront bro that is being peddled to sway the business towards them….case closed and all the lobby’s can now get on and do something constructive…….for example, like fixing up the complaint system which is skewed disproportionately against the adviser.

If you pay peanuts you get monkeys or in this case Apes! The FSC are useless and are led by former pollie Brogden who is clueless when it comes to running a small business. Why would he care with a taxpayer funded pension to enjoy?

We do charge fees in our business, and rebate all commissions including risk, however we provide a bundled advice service including risk as part of the offer.

I believe it would be almost impossible to deliver ONLY risk advice to clients and ask for a fee because it is an outcome based transaction. ‘get the client covered and you deserve to be paid, no cover = no pay’. Unless you could prove what the client terms were before advice, they would be crazy to agree to pay a fee for something they might not even get, or want (if they are loaded or restricted).

Conflicted remuneration is a concept only in the minds of those who do not give advice or do not have a deep care for their clients. To remove this apparaent conflict we simply need to have all insurance companies forced to establish uniform commission rates for upfront, hybrid and level remuneration.

Again, this stupidity is being driven by people who have never been at the “coal face” before and make wide ranging assumptions based on their feel good egos. I fervently hope that if the coalition is elected next year that in their anticipated reforms of FOFA and other issues adversely affecting advisors, that they rid the industry of the mindless and damning “committees” and people who are intent on destroying it.

I have offered a fee for advice option in my business for risk only for a number of years now and talk to clients regularly about the idea of commissions v fees. The simply fact is that the VAST MAJORITY of clients are happy to build any costs into the premiums via commissions and as long as you have built a relationship with a client, they do not care how you are remunerated – in fact most are happy you are being paid for your work. No advice in the insurance world is a dangerous place for a consumer in most situations – especially business owners.

Totally agree with all the above comments. I wonder if the direct advice complies with all the disclosure rules. Underwriting at the time of claim—well that will be the basis for the next “storm” and reform-more FOFAs. Those advisers affected-join another professional body. Be smart-don’t let the idiot purist win.

The basis for this decision by APESB is that they believe commissions are conflicted.

Whilst they are correct in saying those commissions are conflicted remuneration, so too is the manner in which the majority of their members charge.

I don’t for one moment suggest that the way that accountants charge is not appropriate or prevents accountants from providing their clients with excellent advice that is in their client’s best interest. However, to suggest that accountants do not face conflicts between their interests and the interests of their clients is wrong.

In general, whilst I think that fee for service is flawed in respect of risk advice, I wouldn’t presume to tell someone else how to charge their clients.

In my opinion, many of those that charge fee only for risk advice are not being adequately compensated for the professional risk that comes with providing advice (assuming the adviser accepts responsibility for that advice). However, that is their business, not mine. I do, however, find it interesting that medicos (surgeons in particular) seem to have a better grasp of being remunerated for professional risk than many risk professionals.

We have reached a ludicrous point in this debate where the way in which an adviser is remunerated is more of a measure of their professionalism than competence, qualifications, experience and depth of knowledge. It is a tragedy for consumers that quality of advice has been disregarded by the red herring of remuneration. A red herring ironically being promoted by vested interests.

Commissions are the most appropriate form of remuneration for my practice. I am no more conflicted than any of my colleagues who charge using a different model. That is, there is necessarily a conflict between my interests and my clients. However, just as doctors, dentists, accountants, solicitors and, indeed, my fee-for-service colleagues manage that conflict so do I.

Though noble in their intention, those behind the Apes recommendations continue to display an overwhelming lack of awareness or worse yet, a total disregard) of the realities in supplying advice to clients. The concept of “Choice” should not be limited to the product recommendations advisers are able to offer, but also in how the client chooses to remunerate their adviser for services rendered. Detailed advice is expensive and takes many hours of work, offering services that can only be paid for through a fee for service methodology will naturally drive clients to the cheapest, bucket shop, or online solutions where we know simple policies will always be available and premiums gladly taken. What happens at claims time when the underwriting process has been moved to the back end and the future claim is declined based on “non-disclosure” at the time of policy acceptance. All this after years of premium payment. The alternative will drive advisers towards simplified “one size fits all” advice. Not a good outcome for anyone. By all means police the compliance, but don’t take away the primary means by which clients are able to afford both the policy and the payment of comprehensive, tailored personal advice.

Ditto !! Most clients don’t give a toss about commissions, but ask them to pay up front & boy the mood changes. I changed to Hybrid commissions back in 2005 & it’s the best move of my career. It allows me (financially) to service clients on a regular basis, but more importantly be there for them when they least expect it (claim time), or when they just need some TLC !! Hey, you guys know what I’m talking about. I have “had” to do a couple of Fee for Service risk jobs but they are certainly “contractual” forms of business, mainly at the top end, & definitely not with a long term servicing/client focus. In my experience they are the exception rather than the rule. All I can hope for is a change of leadership in this country; Matthias Korman, Liberal Senator in WA has consistently said that once in power, the excesses of the current G’ovt will be rolled back, it’s up to us to ensure we hold him & his colleagues to their word ! One more point; it’s more than apparent that the FSC (Life offices) have a conflict of interest in this debate. Whilst assuring us that they are right behind the IFA’s which are the backbone of the industry, they still lend support to Brogden & Co., & to some degree the IFSN. At every opportunity, be sure to remind these guys that sitting on a barbed wire fence will eventually get very uncomfortable & sooner or later you’ll have to get off. I wonder on which side that will be though ???

The conflicted advice argument in relation to commissions is an absolute joke and could be removed from the debate instantaneously by setting the commission rate, as already mentioned above. The same argument is taking place right now in the mortgage market and has already taken place in the investment industry. Straight away, the hackneyed argument that you will be sold the product (loan, policy, investment) with the highest commission rate is removed forever (not that it even exists with most advisers). Almost too simple a solution maybe? Wouldn’t be able to form parliamentry committes and the like if this were the case. The members of these committees get paid for being involved, so there exists a financial incententaive for them being formed. Could be seen as a ‘conflict’, especially when a simple solution exists?

Completely agree with all of the above. Hopefully the coalition government can stand by their promise to roll back FOFA when elected, or at least the non-sensical parts such as fee only risk advice. Have just completed an application for a family who could afford no more than $30 per month for at least some life cover. Not enough, but better than nothing. If I had to charge them a fee, it would have been $2500 for my time. Instead, I will be earning about $300 because I have done the right thing by them. Maybe I should invoice the govt for the balance?